SPEA V401 – Financial and Cost-Benefit Analysis Spring 2016

SPEA V401 – Financial and Cost-Benefit Analysis
Spring 2016
Professor Bradley Heim
Case Study #3
Due April 21, 2016
REMINDER: You are to work completely independently on this case study. If I receive evidence that a student helped, received help from, or worked together with another student, such student(s) will receive a 0 on this assignment and/or and F for the course.
The city of Annapolis, Maryland is considering turning a subway station to a high-speed rail station in an initiative called “Rails to Monorails”. This railway would be called the Annapolis Purple Line. Although the railway will connect Annapolis to surrounding areas, the project will be funded by the city of Annapolis. You have been asked to calculate the expected expenses to the city government if the rail is built. In addition, you are to calculate the projected economic costs of this project, which will be used for a cost-benefit analysis of the proposal. The accounting domain for the cost-benefit analysis will be the state of Maryland. No taxes would be owed on purchases, except where noted below.
This rail would extend a total of 100 miles, running from Annapolis to neighboring cities in the area. Although most of the old subway rail has been removed, there is still some cleanup work to be done on the subway line in order for it to be suitable for putting down monorail tracks. This work will require rental of machinery from one of a number of local rental shops, at a cost $10 per linear foot of subway rail.
Because the subway station will be refashioned into a new monorail station, a lot of the necessities are already included, such as bathrooms, etc. Also, the monorail train itself was already procured previously as Annapolis has built other monorail stations previously and has extra train cars available.
The rail line would, however, need to have track laid. The current cost for track rails is $50 per linear foot. However, due to the large amount of railing needed for the project, it is projected that the price would increase to $56 per linear foot, and that the city would have to pay this higher price.
Signs R Us, one of a number of local firms selling electronic displays in the area, will supply and install 100 digital displays at the Purple Line train stops. Each will cost the city $330.
New subway turnstiles will be special ordered from Maryland Industrial, a local firm. The total bill for these items is projected to be $50,345 per stop along the Purple Line, which is a markup of $5,490 above costs. The Purple Line has 5 stops along the way.
There will be a number of other features included in several locations along the Purple Line. These include:
• Benches – 30 per stop (ordered from an out of state vendor at a cost of $80 each, which is $24 above their costs)
• Updated restroom equipment – will be donated to the city by Johnson Capital (a local firm), which raised $70,000 for this purpose and will order the equipment from an out of state vendor.
• LED lights – 100 (special ordered from Annapolis Hardware at a cost of $365 each, which is $23 above their cost)
• Trash receptacles – 30 (purchased off the shelf from Annapolis Hardware at a cost of $250 each)
Finally, local construction workers will be hired to work on the project, and it is expected that 45,000 hours of labor will be needed for this project. For these workers, the gross wage is $16.00/hr, but $1.50 of that amount is withheld for federal income and payroll taxes, and $.40 is withheld for state and county income taxes.
A short (no longer than 1½ pages) memo written to Walter Wilson, who is the director of the city’s planning department. This page limit is for text; add an extra page for the table.
Your memo should include the following sections:
• Introduction (One paragraph that outlines the contents of the memo, and describes the project)
• Calculation of Expenses (Include a short, general description on how expenses were calculated, and give an example for one of the input items)
• Calculation of Economic Costs (For each input in Table 1, describe the method you used to calculate the economic (opportunity) cost. If an adjustment to the expense was necessary to calculate the opportunity cost, explain why. If no adjustment to the expense was necessary, explain why not.)
• Conclusion (Summarize your results)
The following table should also be included:
Table 1. Costs of Inputs for Maryland Monorail Project
City of Annapolis Government Expense
State of Maryland Economic Cost
Input 1
$ X1a
$ X1b
Input 2
$ X2a
$ X2b
Input 3
$ X3a
$ X3b

$ Tota
$ Totb


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